Stream One: Empower consumers to get a better deal

The Government will bring in tough new laws to prevent banks from engaging in anti-competitive price signalling that is designed to keep interest rates or other fees higher than they would otherwise be, to build on our existing reforms to strengthen cartel laws.

The Government has been working with the ACCC since mid-2010 to carefully design amendments to the Trade Practices Act 1974 (which from 1 January 2011 will be renamed the Competition and Consumer Act 2010). These reforms will capture anti-competitive behaviours in specific sectors like banking where there is strong evidence they exist, without creating unintended consequences for other sectors of our economy.

The Government will introduce amendments to the Trade Practices Act in the first sitting of the Parliament in 2011, following targeted consultations on exposure draft legislation.

The new laws will give the ACCC the power to take action against businesses in specified sectors like banking who signal their prices to their competitors in order to undermine competition. These tough new reforms will apply initially to banks, with the capacity for other sectors to be specified in future after further review and detailed consideration. Of course, all publicly listed companies will be able to fully comply with their continuous disclosure obligations.

Anti-competitive price signalling technically falls short of collusion because it does not involve a commitment to act in a certain way — but it can be just as harmful to competition as a price cartel. Laws prohibiting these 'facilitating' or 'concerted' practices already exist in the US, the UK and in Europe — and now the ACCC's new powers will close a gap in the Trade Practices Act, which is used by businesses like banks to avoid the full impact of genuine competition.

The Government's exposure draft legislation gives the ACCC the power to prosecute where it concludes that a bank has communicated its pricing intentions and other strategic information to a competitor for the purpose of substantially lessening competition.

Importantly, the proposed law will be clear that a court can make up its own mind as to what it thinks the real purpose was, based on the surrounding circumstances — so there is no need for a 'smoking gun'.

For example, the law designed as proposed would prohibit any bank executive from purposefully signalling to its competitors through the media or investment community that if other banks raise their mortgage rates it will follow them.

This sort of statement could sometimes be designed to say to other banks 'don't worry — if you raise your mortgage rates then I won't undercut you and take your customers'.

The Government has received independent legal advice that considers it would not be appropriate to ban the communication of pricing intentions that have the effect or likely effect of substantially lessening competition, as opposed to the purpose. Such a prohibition would create substantial uncertainty, because market participants could not know in advance how their competitors will react to their public statements, and therefore what the effect or likely effect would be.

Further, any private communications between two banks about their prices would be automatically prohibited under the proposed design, as these sorts of private tip‑offs are invariably harmful for competition.

For example, the ACCC would be able to take action if one bank phones another bank privately to tell them about a planned mortgage interest rate rise.

Breaches will attract tough penalties of up to $10 million, 10 per cent of a business's annual turnover or three times the benefit of the conduct — whichever is higher.

Of course, in limited circumstances where price signalling may be legitimately providing overall net public benefits, the ACCC would be able to provide an exemption for the parties under the existing authorisation provisions.